MEWA and VEBA

Retirees, dependents, independent contractors, temporary employees, and possibly other designated beneficiaries of the employees

The course states that VEBA benefits can extend to members including retirees, dependents, independent contractors, temporary employees, and possibly other designated beneficiaries of the employees, in addition to full- and part-time employees.

Pensions on retirement or death and insurance to provide such pensions

The course states that a VEBA can provide any benefit described in section 302(c) of the Labor Management Relations Act, excluding pensions on retirement or death and insurance to provide such pensions.

Unemployment benefits to members who are temporarily unemployed, subject to specific plan provisions and limitations

The course lists unemployment benefits as an acceptable VEBA benefit, noting that some VEBAs provide benefits to members who are temporarily unemployed, although this is less common and typically subject to specific plan provisions and limitations.

The provision of benefits must be related to the purpose for which the VEBA was established and must not result in improper benefit to the organization's insiders, and the VEBA must not discriminate in favor of highly compensated individuals

The course states that the IRS emphasizes that the provision of benefits must be related to the VEBA's purpose and must not result in improper benefit to insiders. Additionally, the VEBA must not discriminate in favor of highly compensated individuals in terms of eligibility, benefits, or contributions.

Retiree health benefits (medical, dental, and vision), retiree life insurance, and long-term care insurance

The course identifies three retiree-specific benefits: retiree health benefits (including medical, dental, and vision care), retiree life insurance (typically at reduced coverage levels), and long-term care insurance to cover costs of long-term care facilities and home health care.

It is usually provided at reduced coverage levels compared to those provided to active employees

The course states that although active employees often receive life insurance through their employer, VEBAs can continue to provide life insurance benefits to retirees, albeit usually at reduced coverage levels compared to those provided to active employees.

Funding and actuarial considerations to ensure benefits can be sustainably provided over the long term, given potential for long retiree lifespans and rising healthcare costs

The course states that VEBAs offering retiree-only benefits must be mindful of the funding and actuarial considerations to ensure that the benefits promised can be sustainably provided over the long term, given the potential for long retiree lifespans and rising healthcare costs.

The IRS has rules to prevent VEBAs from accumulating excessive reserves beyond what is necessary to provide the specified benefits

The course identifies three IRS guidelines for retiree reserve funding: non-discrimination requirements, rules preventing excessive accumulations beyond what is necessary, and the requirement that benefits for which reserves are accumulated must be permissible VEBA benefits.

Actuarial assumptions and projections of future benefit obligations

The course states that the determination of what constitutes an 'excessive' reserve can be complex and depends on actuarial assumptions and projections of future benefit obligations.

Non-discrimination requirements, rules preventing excessive accumulations beyond what is necessary, and the requirement that benefits for which reserves are accumulated must be permissible VEBA benefits

The course identifies three IRS guidelines for retiree reserve funding: (1) non-discrimination in contributions or benefits, (2) rules to prevent VEBAs from accumulating excessive reserves beyond what is necessary to provide specified benefits, and (3) the requirement that benefits for which reserves are accumulated must fall within the scope of permissible VEBA benefits.

An ordinary and necessary business expense

The course states that for an employer's contribution to a VEBA to be deductible, it must be considered an ordinary and necessary business expense under Section 162 of the IRC.

Section 419, which provides specific limits on deductions for contributions to welfare benefit funds, including VEBAs

The course states that Section 419 of the IRC provides specific limits on deductions for contributions to welfare benefit funds, including VEBAs. These limitations are designed to prevent excessive pre-funding of benefits and the accumulation of excessive reserves.

The rules regarding economic performance and the all-events test

The course states that employers using accrual basis accounting may be able to deduct contributions for retiree benefits in the year employees render services that entitle them to future benefits, subject to the rules regarding economic performance and the all-events test.

They must adhere to IRS limits on VEBA contributions and ensure their contributions do not exceed the amounts necessary to provide the promised benefits

The course states that the timing and amount of the deduction may be affected by various factors, including IRS limits on VEBA contributions and actuarial estimates of future benefit liabilities. Employers must adhere to these limits and ensure their contributions do not exceed the amounts necessary to provide the promised benefits.

Investments must be made in a prudent manner, considering the risk and return objectives suitable for the fund, consistent with ERISA fiduciary responsibilities

The course states that VEBA investments must be made in a prudent manner, considering the risk and return objectives suitable for the fund, consistent with the fiduciary responsibilities outlined in ERISA for VEBAs subject to its provisions.

Certain types of transactions between the VEBA and a 'disqualified person' (such as an employer, service provider, or certain officers) that could lead to conflicts of interest, resulting in excise taxes and other penalties

The course states that VEBAs are subject to rules regarding prohibited transactions, which are certain types of transactions between the VEBA and a 'disqualified person' (such as an employer, service provider, or certain officers) that could lead to conflicts of interest or improper use of plan assets. Engaging in prohibited transactions can result in excise taxes and other penalties.

Investments should be diversified to minimize the risk of large losses, unless it is clearly prudent not to do so under the circumstances

The course states that VEBA investments should be diversified to minimize the risk of large losses, unless it is clearly prudent not to do so under the circumstances. This principle is consistent with ERISA fiduciary responsibilities.

Group-term life insurance, offering a predetermined amount of coverage without requiring individual evidence of insurability

The course states that group-term life insurance is the most common form of life benefit provided by VEBAs, offering a predetermined amount of coverage without requiring individual evidence of insurability, with coverage based on factors such as salary, position, or a flat amount.

Whole life or permanent life insurance provides coverage for the member's entire life, while group-term life insurance typically ends when employment terminates or at retirement

The course states that some VEBAs offer whole life or other types of permanent life insurance policies that provide coverage for the member's entire life, as opposed to group-term life insurance, which typically ends when employment terminates or at retirement.

Sections 401(k) and 403(b)

The course states that deferred benefits like pension or retirement income benefits do not fall within the scope of welfare benefits that VEBAs are designed to fund. These are specifically governed by Sections 401(k) and 403(b) for retirement plans, not Section 501(c)(9).

Long-term disability insurance qualifies as a welfare benefit under the VEBA, but supplemental retirement income is a deferred benefit subject to different contribution limits and tax treatment

The course distinguishes between welfare benefits (medical, sickness, accident, disability, life insurance) and deferred benefits (pension or retirement income). VEBAs are designed to fund welfare benefits, and deferred benefits are treated differently for funding and tax purposes under the IRC. Long-term disability is expressly listed as a welfare benefit; retirement income is not.

To prevent the accumulation of excessive reserves beyond what is necessary to provide the stated welfare benefits

The course states that VEBAs are subject to specific funding limitations to prevent the accumulation of excessive reserves beyond what is necessary to provide the stated welfare benefits. The goal is to ensure VEBAs are used primarily to fund current welfare benefits rather than to defer income or provide retirement benefits.

Membership in the same professional licensing board

The course lists four objective standards for common bond: (1) common employer(s), (2) shared employment characteristics such as same labor union, industry, or job functions, (3) geographical proximity, and (4) membership in an employee organization with a close relationship to the employer(s). Professional licensing board membership is not listed.

Workers who belong to the same labor union and work in the same industry, even if employed by different companies

The course states that shared employment characteristics such as belonging to the same labor union, working in the same industry, or having similar job functions can satisfy the common bond requirement. The standard must reflect genuine employment-based relationships, not incidental characteristics like hire date or residential proximity.

Less common than other standards but still a recognized reflection of an employment-based relationship

The course notes that geographical proximity — members working in the same facility, industrial park, or region — is 'less common but still reflects an employment-based relationship.' It is a legitimate standard, not preferred, outdated, or a last resort.

The IRS would likely reject the arrangement because the organization must have a legitimate employment-based connection to its members, such as being a union or an employee association established for welfare purposes

The course states that membership in an employee organization can serve as a basis for common bond, but the organization must have a 'legitimate employment-based connection to its members, such as a union or an employee association established for welfare purposes.' An organization created solely to access VEBA benefits without pre-existing employment ties would not meet this standard.

If the relationship between these entities and the individuals involved meets the IRS's criteria for an employment-related common bond

The course states that general agents of an insurer and its wholly owned subsidiaries may satisfy the common bond requirement if the relationship between these entities and the individuals involved meets the IRS's criteria for an employment-related common bond. The critical factor is whether the agents share an employment-related link that aligns with providing welfare benefits to group members.

The VEBA provides personal loans to its directors at below-market interest rates

The course states that inurement would be implicated if the VEBA provided loans to its directors or officers, paid excessive compensation to its managers, or engaged in transactions that directly benefited an insider without a corresponding benefit to the VEBA's tax-exempt purposes. Paying covered claims, prudent investing, and reasonable administrative fees are all permissible activities.

The prohibition against inurement, which could jeopardize the VEBA's tax-exempt status

The course explains that inurement refers to the improper use or diversion of a nonprofit organization's income or assets for the benefit of insiders. Paying excessive compensation to managers or engaging in transactions that directly benefit an insider constitutes inurement, and the IRS strictly prohibits it as a fundamental requirement for maintaining tax-exempt status.

The VEBA's earnings and assets must be dedicated solely to serving its tax-exempt purpose; benefits paid to members within the defined scope of life, sickness, accident, and similar coverage are permissible and do not constitute inurement

The course explains that the prohibition against inurement is a fundamental requirement for maintaining tax-exempt status, and that a VEBA's earnings and assets must be dedicated to its tax-exempt purpose. Permissible benefits include payments for medical, dental, life insurance, sickness, and accident coverage. Inurement occurs when assets are used to benefit insiders outside these permissible benefit categories.

The surviving entity must continue to meet the requirements for tax-exempt status under Section 501(c)(9) and the merger must further the organizations' tax-exempt purposes

The course states that VEBAs can merge without adverse tax consequences under certain conditions, provided the merger is structured to comply with IRS regulations. The key is ensuring the surviving entity continues to meet the requirements for tax-exempt status under Section 501(c)(9) and that the merger furthers the organizations' tax-exempt purposes.

The assets must continue to be dedicated to exempt purposes and must not result in inurement to private individuals or insiders

The course identifies three principles for VEBA mergers: (1) continuation of exempt purposes, (2) no inurement — the assets of the dissolved VEBA must continue to be dedicated to exempt purposes, and (3) handling of liabilities and assets must be consistent with tax-exempt status. Unrestricted transfer to a general fund or distribution to members would violate these principles.

The surviving VEBA must obtain a new EIN and reapply for tax-exempt status using Form 1024 within 90 days of the merger

The course lists three principles for VEBA mergers: continuation of exempt purposes, no inurement, and proper handling of liabilities and assets. There is no requirement stated in the course that the surviving VEBA must obtain a new EIN or reapply for tax-exempt status.

The structure and funding mechanisms are determined by the VEBA's governing documents and must comply with Section 501(c)(9) requirements

The course states that contributions to a VEBA can be funded by the employer, the employees, or both. The structure and funding mechanisms are determined by the VEBA's governing documents and must comply with the requirements for tax-exempt status under Section 501(c)(9). Whether contributions are required or voluntary depends on the specific plan's terms.

When the VEBA provides benefits that discriminate in favor of highly compensated employees or key employees

The course lists five situations where employer contributions may become taxable: non-qualified benefits, excess benefits, discriminatory benefits favoring HCEs or key employees, benefits to non-employee beneficiaries that don't qualify, and improper use of funds. Payment frequency and investment vehicle choices are not listed.

The $15,000 for actual medical expenses is excluded from taxable income, but the $3,000 excess payment is considered taxable income to the recipient

The course states that payments exceeding actual medical expenses or the defined benefits under the plan might be considered taxable income to the recipient, because only amounts used for the intended tax-exempt purposes are excluded from the beneficiary's taxable income.

Both activities could jeopardize the VEBA's tax-exempt status and result in taxation of the benefits to the recipients

The course states that improper use of funds — such as personal loans to members or investments that benefit individual members or insiders — could not only jeopardize the tax-exempt status of the VEBA but also result in taxation of the benefits to the recipients. Both activities described constitute improper use of funds.

When benefits paid to non-employee beneficiaries do not qualify for tax-exempt treatment under the specific rules governing VEBAs, even though dependents and designated beneficiaries of employees can generally receive tax-exempt benefits

The course states that although dependents and designated beneficiaries of employees can receive tax-exempt benefits from a VEBA, there might be specific situations in which benefits paid to non-employee beneficiaries do not qualify for tax-exempt treatment under the specific rules governing VEBAs.

Through collective bargaining agreements between labor unions and employers, funded by contributions from multiple employers

The course states that a Taft-Hartley plan is a multiemployer welfare plan subject to ERISA, typically established through collective bargaining agreements between labor unions and employers. These plans provide health, pension, and other benefits to unionized workers and are funded by contributions from multiple employers.

Minimum premium arrangement with a state-run insurance pool

The course lists three ways both Taft-Hartley plans and VEBAs can be structured for insurance purposes: fully insured, self-insured (possibly with stop-loss), and partially insured (combination). A minimum premium arrangement with a state-run insurance pool is not listed.

It can impact the tax treatment of contributions and benefits under the IRC, as well as ERISA regulatory oversight regarding reporting, disclosure, and fiduciary requirements

The course states that when these entities are structured as insured plans, the arrangement can impact the tax treatment of contributions and benefits under the IRC, as well as regulatory oversight under ERISA — particularly in terms of reporting, disclosure, and fiduciary requirements.

A MEWA established or maintained under a collective bargaining agreement may be treated differently under certain state laws because federal law under ERISA preempts state law for collectively bargained employee benefit plans

The course states that when a MEWA is established or maintained under a collective bargaining agreement, it may be treated differently under certain state laws, given that federal law under ERISA preempts state law for employee benefit plans that are collectively bargained. This distinction can affect compliance requirements, reporting, and other operational aspects.

The nature of collectively bargained benefits, which are negotiated for a broad employee base, helps demonstrate compliance with nondiscrimination rules

The course states that VEBAs established for employees covered by a collective bargaining agreement must ensure compliance with nondiscrimination rules. However, the nature of collectively bargained benefits — which are negotiated for a broad employee base — helps demonstrate compliance with these rules.

Selection of the VEBA's investment manager and asset allocation strategy

The course states that for VEBAs, collective bargaining agreements can determine eligibility for participation, types of benefits provided, and funding levels. The selection of investment managers is not listed as an area directly determined by the collective bargaining agreement.

Restrictions that limit employer deductions for contributions to the VEBA

The course states that VEBAs associated with ten or more employers generally face restrictions that limit employer deductions for contributions to the VEBA. This restriction is designed to prevent certain tax-avoidance strategies and ensure the primary purpose is providing essential welfare benefits.

To prevent certain tax-avoidance strategies and ensure the primary purpose is providing essential welfare benefits to employees

The course explains that the restriction on deductions for multi-employer VEBAs is outlined to prevent certain tax-avoidance strategies and to ensure that the primary purpose of these VEBAs is to provide essential welfare benefits to employees, aligning with the tax-exempt purposes under Section 501(c)(9).

The association's purpose and the employment-related common bond among its members, along with its operational and organizational structure

The course states that the primary focus for a VEBA's qualification under IRC Section 501(c)(9) is on the association's purpose and the employment-related common bond among its members, rather than the size of its membership. The IRS evaluates entities based on their operational and organizational structure.

Smaller groups may face challenges in effectively managing risk and costs associated with providing benefits

The course states that although there is no explicit minimum number of participants for VEBAs, practical considerations such as the ability to spread risk and the administrative feasibility of providing benefits may influence the size of a VEBA. Smaller groups may face challenges in effectively managing risk and costs.

Whether the owner-employee can be considered an employee in addition to being an owner

The course states that the eligibility of owner-employees to participate in a VEBA depends on their employment status and the structure of the business. The critical factor is whether they can be considered employees in addition to being owners.

VEBAs are subject to nondiscrimination rules to ensure benefits do not disproportionately favor HCEs or key employees, which could include owner-employees, and plans must benefit a broad cross-section of employees

The course states that VEBAs are subject to nondiscrimination rules to ensure that benefits do not disproportionately favor HCEs or key employees, which could include owner-employees. Plans must be designed to benefit a broad cross-section of employees to maintain tax-exempt status.